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M'sia Is in Another FOREX Pickle (Bloomberg)
By David DeRosa

12/4/2001 10:56 pm Thu

[Dulu bolehlah Mahathir ketawa mengenakan kawalan matawang kerana nilai ringgit agak padan. Sekarang seluruh dunia dilanda gelombang kemelesetan sehingga Amerika dan Jepun sendiri pun bergoyang.

Inilah dua negara penting yang menyerap ekspot Malaysia khususnya dalam bidang elektronik. Mereka tentunya kurang berminat untuk mengimpot barangan dari Malaysia kini kerana ringgit sudah terlalu tinggi berbanding matawang serantau yang melemah berikutan kejatuhan yen akibat kemelut ekonomi dan ketidak tentuan politik di Jepun.

Menurut Derosa, Yen dijangka merosot lagi berikutan polisi kewangan baru 'pelegaan kuantitatif' (pengembangan sengaja pengeluaran wang asas) kerajaan Jepun. Jika ia jatuh keparas yang cukup lemah Mahathir akan lingkup, atau 'terpaksa memakan burung gagak sahaja', perli Derosa. Ini adalah kerana semua pembeli akan tertumpu ke Jepun kerana lebih untung.

Pelabur sudah tidak berminat lagi untuk mendekati Malaysia kerana Mahathir suka menukar polisi secara tiba-tiba bila terdesak sehingga terjerat mereka.

Walaupun Malaysia mungkin tidak berbuat apa-apa terhadap ringgit, ia akan tergugat juga kerana permintaan seluruh dunia sudahpun merosot. Kita perlu bergantung kepada simpanan yang ada - malangnya ia cuma tinggal untuk beberapa bulan sahaja........ inilah satu malapetaka yang bakal menjerut negara jika Mahathir terus dengan kedegilannya. Bila ini berlaku kehebatan KLIA dan ketinggian menara Petronas di KLCC pun tidak akan dapat menolong apa-apa. Malah mungkin tiada sesiapa pun yang mahu membelinya ... atau tergadai sahaja.
- Editor

2001/04/11 00:03 touch=1&s1=blk&tp=ad_topright_bbco& s2=blk&bt=blk&s=AOtPXkhVHTWFsYXlz

Malaysia Is in Another Foreign-Exchange Pickle

By David DeRosa

New Canaan, Connecticut, April 11 (Bloomberg) -- Malaysia is foreign exchange's problem child. It is now becoming clear that the nation's currency, the ringgit, is overvalued relative to the dollar and to other Asian currencies. Yet proud Malaysia resists any talk of devaluing the ringgit or letting its value be set by market forces.

As a consequence, the country's high-tech exporters are beginning to suffer. What is happening now is that Malaysia has begun to reap the bad consequences of having a pegged exchange rate.

More than two years ago, irascible Malaysian Prime Minister Mahathir Bin Mohamad slapped a ban on all trading in the ringgit, restricted the movement of capital out of the country, and pegged the currency at 3.8 ringgit to the dollar. All of this was in response to the Southeast Asian currency crisis that erupted when neighboring Thailand was forced to float its currency in July 1997.

But note that Mahathir's decision to peg the ringgit did not come until 14 months after the flashpoint of the crisis. And for a while, his sense of timing appeared inspired because the other currencies in the region, and the Japanese yen, rebounded.

Malaysia, having in effect created a competitive devaluation of the ringgit, saw its exports flourish.

The Flip Side

The problem now for Malaysia is that all Southeast Asian currencies have been on the skids since January 2000. In the past 15 months, the Thai baht has fallen 19 percent against the dollar and the Indonesian rupiah by 34 percent. Even the yen has fallen, by 17 percent.

Worse yet, the framework of Japan's new monetary policy, announced last month, features ``quantitative easing,'' meaning the deliberate expansion of the base money supply. If this is aggressively pursued, the yen will weaken further. Many traders think that levels of 130 or even 140 yen to the dollar are possible by the end of this year.

Mahathir, by declaring an end to trading in Malaysia's currency, probably thought that he had rid himself of the foreign- exchange market once and for all. Yet that is like medieval England's King Canute trying to command the waves to stop before his feet.

Even with capital controls and pegged exchange rates, currency trading effectively happens as long as a country exports and imports goods and services.

If the forecasts for a lower yen materialize, and thus make Japanese exports relatively less expensive, Malaysia's export industries will be at a competitive disadvantage.

On top of that, global demand for goods and services is slipping, even without Malaysia's currency problem. It is no secret that the large economies are slowing. This is true in the U.S. as well as in Asia and Europe.

Float or Peg Hard

So what should Malaysia do about its exchange rate? Malaysia could keep its peg, only at a different rate. This is what Finance Minister Daim Zainuddin seems to want, as he said last week that ``for the sake of predictability and certainty, the peg will remain.''

This is not going to solve Malaysia's other problem: The country is a pariah in world markets because of its arbitrary impositions of capital controls.

The effects of Mahathir's actions in 1998 are now being felt. Malaysian debt and equity offerings are getting cool receptions in world capital markets. Why buy Malaysian assets, investors say to themselves, when Mahathir could make another arbitrary move, such as freezing foreign investments? Once burned, twice shy.

The solution is that Malaysia must announce a totally new policy on foreign exchange. It must swear never to reinstitute capital controls. Then it must de-peg the ringgit.

As for choosing foreign-exchange regime, either Malaysia must institute a currency board to fix the rate after first allowing the ringgit to find its true market value, or it must commit to letting the ringgit float forever.

Of course, any of these steps would constitute a complete reversal of Mahathir's former draconian foreign-exchange policies. Too bad. If the yen falls far enough, the foreign-exchange market is going to make Mahathir eat crow.